The College Conundrum

I was paid $20 a day, @6 days $120 per week. I saved $100 and kept $20 for pocket-money. I sponged off my parents for the summer’s room and board. Over the 12 weeks I put aside $1200. That covered my rent, tuition, fees, books and food for the entire school year. Although many dinners were white rice and ketchup. But that left a few bucks for beer at the local taverns. 25 cents a glass if you went to the right place at the right time.

Then, like now, times were bad. At least for us English Majors. It took me two years of menial jobs before I landed my first post graduation “professional” gig. No problem. I’d mastered in the art of cheap living while earning my degree. I graduated debt free.

Here’s my favorite cartoon:

The visual is two guys in a corn field. They are up on racks dressed in shabby clothes. Straw is coming out from their shirt cuffs and pant legs.

They are serving as scarecrows. One is looking over at the other and saying…

“English Major. How about you?”

(wish I could get somebody to draw this…)

This spring my daughter finished her second year of university. $1200 about covers the cost of her books. $53,562 so far and it’s only that low because she earned a $12,000 annual academic scholarship. My guess for the grand 4-year total: 160k – 48k scholarship = 112k out of my pocket. And this doesn’t include the fees for extracurricular activities and spending money she pays for herself.

If she’d gone to NYU, her second choice, it would be 60-65k per year and no scholarship. 240-260k total.

One of my friends discribes it this way:

“It is like going out and buying a brand new BMW, driving it for a single year and then throwing it in the trash.

Oh, and you do this for four consecutive years.”

Breathtaking.

But what’s really breathtaking is what happens when we run some numbers. Let’s hop over to our pal Dave Ramsey’s site and borrow his calculator.

We’ll plug-in a projected return of 8%, very reasonable for VTSAX over time. We’ll figure a 40-year working life span and we’ll plan to add -0- more $$ along the way.

$112,000 grows to $2,718,619 by 2052 when our graduate turns 62.

$250,000 grows to $6,068,347.

I’m a huge believer in education but still, on a cost benefit analysis, it’s tough to see the value. Of course, this depends on a couple of unlikely situations to actually play out:

1. You have the cash to invest in a lump sum.

2. Your kid actually having the discipline and courage to leave it untouched and invested for decades.

Here in a nut shell you can see the reason the value of a college education is coming into question in more and more quarters. This before we even consider student debt.

Today in the US the overall student debt stands at over $1 trillion dollars.

Total credit card debt = $693 billion.

Total auto loans = $730 billion.

Here’s the real kicker. Unlike other kinds of debt, as truly awful as they are,

you can never walk away from your student loans.

They survive bankruptcy. They will follow you to your grave. Your wages, and even Social Security, can be garnished to pay them. No wonder banks are falling all over themselves to issue this debt. I am a firm believer in personal responsibility, but the ethics of encouraging 17 & 18-year-olds who likely have little financial savvy to almost automatically accept this burden gives me serious pause. We are creating a generation of indentured servants. Hard to see the ethics or benefit in that.

One of the more unfortunate results of spiraling college costs and debt is the astounding amount of pressure tied to this process. My daughter is surrounded by friends who are stressing out. Worried about making the “right” choice. The choice that will get them that all important job. Their parents are stressing even more.

Education has value in and of itself. Or at least it should. It is a time to expand your mind and your horizons. To explore, not contract, your options. You have your whole life ahead to figure out your career, and you’ll likely have five or six different ones before you’re done. Unless you wind up living a really boring life. Which, of course, most people do.

Here are some things for parents to think about:

College is a luxury and like all luxuries, not easily afforded.

It’s not about you. Is it right for your kid?

If you want college for your kid they are going to need your help. Lots of it. Prepare now.

College loan debt is a huge cloud under which to begin a life. Not something I want for my kid. You?

Is your kid academically inclined? If not there are better choices.

Will a 4-year degree be a career help? Sure. Depending on the career. But other things will help too.

On a purely ROI basis two-year vocational degrees, apprenticeships and trades likely offer a better return for many kids.

A university degree is only the beginning of one’s, hopefully, life-long education.

Here’s what I’d do as a student doing it on my own:

Work. Full time. You’re young and tough. You can handle it. Ideally some place with a college reimbursement program or as an apprentice for a trade.

Live dirt cheap.

Enroll in your local state university. Full time. You’re young and tough. You can handle it. These provide the best education at the most reasonable cost.

Evaluate your commitment to a university education after a semester or two.

Figure this is going to take longer than four years.

Avoid any other financial commitments. Don’t be taking out car loans or making babies.

Consider the military first. You’ll enjoy veterans’ benefits the rest of your life, not the least of which is the GI bill paying for your education.

An education is forever. It is the only thing you can buy and never lose. I’ve met people who thru war or natural disaster have lost everything. They were left absolutely penniless. But they still had their degree and the skills and education it represents.

She is academically inclined and a great student. As we figured, she’s getting the most out of it.

She is getting paid $12,000 a year with her academic scholarship.

She appreciates it.

We can afford it.

She’ll graduate debt free.

Plus, it is simply a lot of fun. I had a grand time in college and so is my kid now. There’s something to be said for that, too.

38 Comments

Such important information. When I graduate, I’ll only have an associate’s, but I’m grateful that I’m finally able to afford college at all through grants and scholarships. I hope to get a Bachelor’s. I feel like I’m a pretty good student, and I know I enjoy learning. But I have so many friends and peers who have graduated with four year degrees or masters’ that simply can’t find employment. And they’re buried in student debt. That’s a path I’m not willing to take.

While I think that discussions like this are important, they always make me so sad. I don’t think that four years of a broad/deep academic education is right for everyone and it’s unfortunate that society currently deems so important. I know more than one person who miserably struggled through college – some because they felt there was no other choice and some who really did want a career that needed the degree even if the actual degree didn’t make a lot of sense for the chosen career.

As an academically oriented person, however, I wouldn’t exchange my college experience for the world. I got into schools closer to home that would have offered more scholarship money, but thankfully my parents encouraged me to go with my first choice which was a private school across the country.My parents and I both took out loans to cover the cost of living and tuition although I did work part-time during the year and full time during summers. All of those loans are now repaid (or will be as soon as they become active with that chunk of money I’ve saved). I can’t imagine getting a better education anywhere else and I thrived in the environment. Over four years later, I’m in daily contact with a 2000+ community of alumni (through social media venues) that continue to enhance my life and challenge my views. I would have enjoyed my time at a state school closer to home and I probably would have done just as well with less debt but I wouldn’t have ended up with the same major/career track in a large competitive school.

Mostly, I think you need to know yourself (or your kids) and be honest about what education means to you. Of course, that’s not an easy task at 18 years old. For some, that might mean trade school, for others it means living as cheaply as possible for 4-5 years while you ‘get through’ the classes you need to finish a degree. I only take issue with the black and white arguments. There is still a very special place for small liberal arts schools in this country and they shouldn’t be reserved for the very rich who can afford to attend without taking on any debt.

Finally, if anyone is interested in more trade based careers, they should be encouraged to look into adult schools (through the high school district) or community colleges which have some great programs available in all sorts of fields. These days, I know many students who thought that the only option was a for-profit trade school which put them in more debt than if they had attended four years of a traditional state university.

Thanks for the thought provoking post!! Also, I’ve only had one cup of coffee this morning so my reply is probably not as eloquent as I would like!

Nice write-up Jim. I have two daughters attending college(Berkeley and NYU). So, I can easily relate to your viewpoint about cost of education. America offers finest universities, but we are competing in the global economy. And, the goal of growing economies such as India or China is simply to foster skills that are in demand. The real challenge posed by the high cost of education demands serious scrutiny by all of us to ensure that our children are not only following their passion, but also pursuing degrees — with higher competitive advantage — that can justify hundreds of thousands of dollars to earn these prestigious degrees.

Just adding my 2 cents. I don’t think most people, let along 18 year olds, have a “passion”. Even finding a strong interest can be difficult and the few that discover one are fortunate. This blogger has an interesting perspective on success.

Ha, yes, too much thought has gone into the value of a university education. I really think the education landscape will change in the coming years. The younger generation now has many opportunities to enrich and educate themselves outside of the traditional university path. Qualifications and certifications are a different matter though. Lawyers, accountants, engineers, doctors, etc. will always have profession requirements and require following a traditional path, but I feel for those not inclined to those jobs there are many alternatives available.

I will always support them. My younger daughter at NYU is on the presidential scholarship. So, it costs me only 15K per year. Niki also gets scholarship at Berkeley, but I have to pay out of state fees. Berkeley costs me around 40K per year. I still want them to think about degree to get the return on the investment. I don’t want them to have any debt when they graduate.

A (well-off) friend of mine has been sending his two kids to the private school (40K per year per kid) from their second grade – and spending another 10-20K for school activities. Kids are not kids any more – they are finishing the high school in the next 2 years, and he is expecting them to go to the college and then university (he prefers medical school) which will set him back by another 300-400K per child. By the time he is done, and kids are in their late 20’s, he could have had at least a million bucks in the bank for each kid, a house and a car paid for. Million bucks would have produced a nice protected trust that would yield $60-80K in interest each year, so they could have been set for life without having to work one day in their life. Now, with guaranteed money coming to them each year, they could have taken time to find themselves, maybe start a business or even go to the school when they are mature enough to know what they want.

There are people and jobs that require college, but I believe that many kids would be better off by taking the money and living in Europe or Asia for a year, then working for a few years and only then deciding if they want to go back to school.

“There are people and jobs that require college, but I believe that many kids would be better off by taking the money and living in Europe or Asia for a year, then working for a few years and only then deciding if they want to go back to school.”

Yes, this is how I feel as well Mr. Risky Startup. Some, probably the minority, of 18 year olds are academic and focused enough to head straight into college. For the rest, taking a few years off to potter about in a new environment is not a bad way to figure out what direction they might want to head in the future. Singaporeans are required to do military service for a year or two after high school and they are routinely 20-22 years old when they head off to uni. It’s not a bad thing to have those extra years of maturity before you take on the expense and opportunity of a university education.

Some very wise advice in here. I’d like to reinforce the idea that “expensive private American university” and “life of desperate poverty” aren’t the only choices. For example, PhD tuition at my university (in eastern Canada) is just under $700 a semester (just under $900 for international students), and the entrance scholarship is $10K a year.

my daughter is 3. we are debating sending her to private school vs public school. the elementary school she would be going to is really good. people move into the neighborhood just to go to this school. pre-school is 33k. looking at 18 years of that cost plus annual increases. growing up middle glass, i think if i just saved that money for my daughter she would have 1M+ at 18.

having been to your blog, you are in a position to easily afford even expensive private schools so my guess is your question is more which is best.

When my daughter first entered kindergarden we lived in a fairly gritty inner-ring suburb of a large city. We liked the urban vibe and weren’t planning to have kids. We didn’t want to move but didn’t like the public schools, so we enrolled her in the Catholic school.

When we moved to NH, she was in second grade and we choose a town with first rate award winning pubic schools and they served her very well.

That said, this is a wealthy community and a fairly large number of people send their kids to private schools. It might be my hardscrabble background talking, but it’s hard for me to see this as anything other than snobbery. Personally, I’d rather give the money away.

Some claim that private schools offer the advantage of associating with other kids who are bound for a successful career. For me, the insulation is more likely to produce spoiled little rich kids with no regard beyond themselves and their protected circle. Just living in this town provides enough of that.

Looking at college, I am more on the fence. My daughter’s top two choices were University of Rhode Island and New York University.

URI is around 40k but they gave her a 12 annual scholarship.
NYU is around 60k and no scholarship.

So a 32k difference, 128k over the four years. I may be FI but that is serious money to me. If it were less so, I’d have pushed her to NYU the “better” school at least by reputation. A case of “Why not?”

Since we could have made it happen, sometimes I wonder if I should have.

But, all that said, she’s had a wonderful experience at URI and just loves it. So, no real regrets.

Jim, do you ever feel that private colleges/universities jack up their price just so people that can afford to pay full price, subsidize those that can’t? I was fooling around with a college cost calculator and was surprised to see how much less I would have to pay if I just didn’t save my money.

I think they are pretty open about doing just that. That’s where “need based” scholarships come from.

Like you the thought occurred to me that maybe my diligence was only keeping me from the gravy train. Maybe…

But that also would have put my fate and my kid’s college, in the fickle hands of bureaucrats. No thanks, I rather do it myself.

I also think the ready availability of student loans has given them tremendous leeway in raising their prices. It is the same dynamic as too much and too easy mortgage money and we know how that ended….

Hi Jim, I have been wanting to read an article about university education for a long time now. So thanks for posting this. My husband and I go back and forth on this topic year after year. We have five children ages 24 dd, 20dd. 17ds, 11ds and 7ds. My 24 year old is convocating with a 4-year degree debt free and is going for another degree(take her two more years) and then wants to do a PHD. My second daughter is in her third year of English and wants to go into Education or Law. We have not paid out any money for either daughter and both are paying their own way. We live in Canada where university education is nowhere near the cost of the States.

I sometimes wonder if we are making the right decision though. I, like you, want my children to be educated yet I am not paying for anything. Is this fair? Yet my 24 year old moved out and is paying over $500 for rent while going to university when she could be living at home. She can’t stand the noise of her younger two very loud brothers and says she needs quiet to study and cope going to school. Then my second daughter who is really frugal is going to take 6 months off university and fund her own trip to Youth for Missions trip. So I think if I am paying for their university or helping them, then indirectly I am paying for rent or mission trips/travelling trips. Do you see where I am going with this? So I am sort of stuck as to whether we should be helping them or not. I see my younger boys and I am not sure they will come out debt free like my older two daughters-they are lifeguards that make good money in the summers and a bit part time while going to school. So I toss around the idea of staring an RESP for them now and when time comes for boys to use them, I can then give the girls some money at that time. I feel quite stuck actually in all these financial educational decisions.

Anyways, I enjoyed reading your point of view. If you have any advice or comments, please feel free.

If I understand correctly you have the resources to help your older daughters but are concerned that this might deplete what you have for your sons later?

I have two older (6 and 10 years) sisters and my parents paid for both of their college educations. But when it was my turn, my dad had taken ill and his business collapsed. There was no money for me.

I’ve always taken a certain amount of pride in putting myself thru school but it was pretty hard. I turned out hard working, but then so did my sisters.

So if I can ease the path for my kid a bit (tuition, room & board, books) I do it. But I also let her work and pay her own way (spending money, travel, sorority dues) on some things.

Perhaps you might consider creating five buckets and fund them equally. Then pass the money to the kids as they need it and as you see fit. Anything left in a kid’s bucket you can give them as they leave the nest.

We do have nearly 1M in retirement portfolio so we do have resources. I guess what I am saying is if I start paying for my two daughters education(younger boys too young right now for university so I don’t know how they will be handling their own money) I am indirectly paying for my oldest daughter’s rent money(she can live at home in the same city as the university she goes to but she finds it too noisy here with her brothers). Plus I am indirectly paying for my second daughter to take 6 months out of her university education to go travelling on a missions trip(YYAM). I guess I must sound a bit bitter huh? I think if I am going to pay for their university I want to see them be really frugal ie. live at home ; not be travelling half way through their degree.
I don’t have the answers to what I am seeking so I read your article and it resonated with me when you said you wanted your daughter to have an education and so you are going to help. I too want my children to be educated but so far I haven’t helped them out. My question is : should I be helping them out? Is it the fair thing to do? Am I being selfish with not helping them out.

By the time by 7 year old gets to university, it will be very expensive and if I haven’t started now, by then my dh will likely be retired and we wouldn’t have planned for it. I believe in being fair to all 5 children. I guess I feel stuck in a way. No one helped my dh and I out for our university/college educations. Has times changed that we need to be helping out our own children? These are the dilemmas I toss around and around.

Maybe like you said do 5 buckets and add to each one each year or something like this. It is obviously a situation I have wrestled with over and over again. Maybe the fact I haven’t been able to resolve it, is that I should be helping out?

Now am I so confusing you? Sorry if I am rambling. Does any of this make sense?

You do not owe your kids anything, as long as you brought them into the adulthood. However, if you do decide to help them out, you cannot do so and then look at all these scenarios. Simply decide how much you want to help each child, give them the money without restrictions, and do not get offended if their choices are not exactly what you would do. If you gift the money, you have to do so without hidden agenda. That is the only way to keep the family harmony.

Your older kids are adults – they can pick their path without your help.

It sounds like you want to help your kids without making them expect it or not learn the vital lessons of life.

Maybe you could boil down to what you want to instill?

Learning is good = I’ll pay 50% of tuition/on-campus living/something else that encourages remaining in school etc.

Being well-rounded culturally = I will buy you a ticket to spend the summer in a foreign country of your choice for as long as you stay in school.

Something like that. You don’t spend a fortune to push your own agenda, but get sort of what you want to impart in the kids AND give them something to be grateful for and also imparts wisdom and a thirst for knowledge etc.

Another thing you could do is sit the kids down and ask them what they think about your struggle with how to help them without spoiling them.

I live in Canada (which makes the education much more affordable), and one of my friends did this:

1. She offered her kids free room-and-and board at home if they want to continue education past high-school.
2. She funded RESP accounts for each child (something like $10-20K per child per year), but when time came for the kids to start school, she made them a deal – they take student loans to pay for school – if they pass the year, she takes the money from RESP and pays off their loan for that year. If they fail, loans are not paid off.
3. She asked each child to take the year off before staring college/university and she paid for some backpacking through Europe and “free” time for them to take a break from 15 years of school and try to think what they want to do with their life.

I am following her example – saving enough for kids to either pay for their school or living expenses while at school. So, they can live at home, go to school that I pay for and they will finish debt-free. Or, they can go away for school, but then they have to either take student loans or work for room and board.

Lastly, I am not going to encourage or discourage them to go to school.

Thanks Mr. Risky Startup. These suggestions you posted and your comments do make sense to me. I think I will start up an RESP for the younger boys-it is too late for the older girls but I can just gift them money as I give the younger boys their money for school. Since both girls will likely be debt free coming out of their one or two degrees, my husband also suggested we could help in the future for a down payment on a home. Lots to think about but I am going to get started on the RESP contribution this year for sure.

RESP is a no-brainer for sure. Government adds something like 20-25% on the first $2000 that you stick in the RESP each year – so, it is like 20-25% return on your investment. And, if they do not want to use it, or you change your mind, you can cash it out and you only pay back the government part, or save it and move it to grandchildren (once you have some).

As for the gifting money to your daughters for down-payment on the house, it is another loaded gift – forcing them to make a major decision (buying a home) in order to get the gift. I advise you again that you gift without conditions, or at least without making them feel guilty if they use the money for what you think is the right choice. Imagine if you removed the question of what the money is used for, and you just announced that each child will get $X as a gift from you. If you are worried that they will blow it all too fast, make it annual gift – maybe every Christmas they all get $X.

Good luck. Sometimes it is harder to gift the money than actually make the money.

I am thrilled to see this conversation taking place. One of my ambitions for this blog has been to see commentators talking directly (and importantly: respectfully) to each other rather than just to me. This is, I think, the first time. Hope it happens more often.

You say $112K out of pocket for four year of college. A large portion of that, say 50%, is living expenses. Living expenses must be paid whether one attends school or not. Living expenses should be removed from the equation.

I went to community college and transferred as many credits as possible over to the local university where I finished my bachelor’s while living rent-free at home (I paid my own insurance, phone, books, and chipped in on groceries). My mom covered the two years of tuition with college savings for me; I paid for the community college credits (as a result my education came in under budget so my mom gave me the remaining funds in the form of mutual funds and a retirement account). During that entire time I waited tables, file-clerked in an office, and babysat on Saturday nights. My first job out of college didn’t offer tuition assistance but I always had it in my mind that I would NEVER pay for a master’s degree. For my second job I worked as an administrator full time for an elite university which paid for my master’s at a local Ivy League’s continuing education program which offered classes at night. It took me 5 years to complete because I stayed within the tuition assistance allowance each year but in the end I had a free master’s degree (and was vested in my university’s pension…).

My husband has 3 degrees: bachelor, master’s, and PhD from an Ivy. He got PAY PLUS BENEFITS to get his PhD. He gradually worked into his master’s program. First he was an employee of the school (earning very little) taking classes there for free, then he took educational leave from his job (some universities have this benefit for their employees) to pursue the degree full time. At that point he began working as a teacher’s assistant which provided him with a stipend, medical insurance, and free tuition. He left with a $100,000 master’s degree from an elite state school PLUS $20,000 in a retirement account and no debt. He did not have much support for his bachelor’s but he went to a small state school so the expenses were very low. Still he took on $8,000 in debt to complete his bachelor’s.

I think it’s fine to support your kids through the school that you can afford. We were both raised by single moms so it just wasn’t going to happen for us. My single mom laughed at the tuition of the small liberal arts college that I originally wanted to attend. That’s the problem with the student loans now: people think that they can afford schools that they can’t. I am so thankful that my mom had the sense to tell me no-way on that one. Whatever we can afford to pay for our son will dictate where he goes. The New York Times recently did a long article on how students today are hobbled with debt: not everybody!

This is an old thread, but I’m hoping my question will get answered! Of course I’ve read a lot about the subject, but I’m wondering your personal belief regarding student loan debt and investing. Unfortunately my parents didn’t school me in the “value” of education, nor did they school me in the (EEK!) terrible side of debt. Anyways, I have no other debt except student loans and live very frugally. I also make a decent salary and have a good retirement fund going. Should I focus on paying off my student loans before building up anymore retirement funds? What are your thoughts? Or does anyone else have opinions/experience in this situation? Super big thanks!

Basically, I would apply my rule of thumb for paying off a home mortgage. If the interest rate is:

6% or more, focus on paying off the loan.
4% or less, focus on building your investments.
In between, follow your heart.

Since I despise debt that last for me would mean focusing on paying off the loan.

If you do decide to focus on the loan, pay the absolute maximum you can each month.

The good news is, by the time you’re done, you’ll have a very strong habit of sending that money off. So it will be easy to then channel it into your investments and watch them build! You’ll be amazed at the progress.

I just paid off 70k in student loan and credit card debt. My wife was the smart one who graduated debt free from a public University. We are newly married and I just couldn’t bring the debt to out new life. It took me 4 years, but I paid it all off and established an emergency fund during that time period. I have friends who have 200,000 in principal debt, but I always tell them do the math. if you pay that debt off via minimum payments over 30 years, what you actually have is closer to 300,000 to 500,000 of debt, depending upon how you calculate it. Their payments were about 1,200 a month. If that ain’t robbery! One went to George Washington Law School and other went to Columbia. (grad studies).

Just WOW, the situation in the US is really bad compared to most places in Europe. I finished University (in Switzerland) with student debt of about 40’000 CHF which will be paid off this year. I am fortunate in the way that it was a government loan of my country that is interest free as long as you pay it back within 5 years. So I know that I am very lucky. But still, at the time when I had to make the decision to get the loan I was very naive money wise and I wish my family had given me some advice on the financial side of college. This is why your work here on the blog is of such high value, Jim!